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Can Airlines ETF Take Off on Earnings Surprises?

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Now that the earnings season has been set in motion, it’s time to look at the airlines industry as two bellwethers are reporting today. But the underlying fundamentals do not seem very bright, especially with Delta Air Lines Inc.(DAL - Free Report) recently indicting that the paceof ticket-price hikes decelerated last month and cuttingits unit revenue guidance.

This gave cues of softer-than-expected holiday season revenues. Then shares of American Airlines Group Inc. (AAL - Free Report) slipped on Jan 10 after the largest U.S. airline reduced its profit estimate for 2018 and cautioned investors that it found it hard to grow revenuestoward the end of the year. The company said it expects to record 2018 per-share earnings of between $4.40 and $4.60, down from its prior estimate of $4.50 and $5.

In this scenario, investors must be waiting with bated breath to see how airline companies are performing this reporting season (read: Second-Longest Shutdown Puts These ETFs in Focus).

Inside Our Surprise Prediction

Among the big six, Delta Air Lines Inc. (DAL - Free Report) is likely to report today before market opens. At the time of writing, Delta has a Zacks Rank #2 (Buy) and an Earnings ESP of -0.07%. This lowers the predictive power of ESP because a favorable Zacks Rank when combined with a negative ESP makes surprise prediction difficult.

Zacks Rank #2 United Continental Holdings Inc. (UAL - Free Report) is likely to report on Jan 15, after market closes. It has an Earnings ESP of +13.26%. When you combine this positive Earnings ESP with the stock's Zacks Rank #2, it means a beat is possibly around the corner. Both stocks have a VGM Score of A and hail from a top-ranked Zacks industry (top 14%).

On Jan 24, American Airlines Group, with a Zacks Rank #2 and an ESP of -3.85%, will report earnings results. It doesn’t make it a sure-shot candidate for an earnings beat. It has a VGM Score of B.

Alaska Air Group Inc. (ALK - Free Report) is expected to report on Jan 24 after the market opens. The stock has a Zacks Rank #2 and an ESP of -2.13%. Here also, surprise prediction is tough. ALK has a VGM Score of B.

On Jan 24, JetBlue Airways Corporation (JBLU - Free Report) is likely to come up with its earnings release. It has a Zacks Rank #2 and an ESP of -14.51%. This once again makes earnings beat prediction difficult. The airlines has a VGM Score of B.

Southwest Airlines Co. (LUV - Free Report) is likely to come up with their earnings releases on Jan 24. Southwest Airlines has a Zacks Rank #3 and an ESP of +2.69%. When you combine this positive Earnings ESP with the stock's Zacks Rank #3, it shows that a beat is possibly around the corner. The stock also has a good VGM Score of A.

What DoesSurprise Prediction Say?

Despite a pool of negative ESPs, some of the airlines may beat, but that it would be on already-lower expectations. Still, if the whole lot manages to beat this season, stocks and the pure-play ETF US Global Jets ETF (JETS - Free Report) may definitely find some support.

JETS in Focus

The $87.6 million-fund holds more than 30 stocks in its portfolio and is concentrated on a few individual securities. United Continental (11.26%), Southwest Airlines (11.85%), Delta Airlines (10.62%) and American Airlines (11.56%) take the first four positions in the fund.

Alaska Air and JetBlue hold the fifth and ninth positions in the fund with a 4.30% and 3.86% weight, respectively. The product charges 60 bps in fees. The fund has lost about 2.5% in the past month (as of Jan 14, 2019) (see all industrials ETFs).

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